By Simon Webster ‑ May 2, 2019
At long last, signs are emerging that the challenges and opportunities associated with maximizing IP assets are starting to firmly appear on the board agenda. In a market where companies are continuously seeking competitive advantage fuelled by innovation, this trend is only likely to continue… and the stakes will continue to rise.
Recently released research (the 2019 Intangible Assets Financial Statement Impact Comparison Report) from professional services firm Aon and the Ponemon Institute, a research organization specializing in data protection and IT, has found that 81 per cent of organizations identify IP in their top 10 risks, even though only 16 per cent of such IP assets are covered by insurance.
This new research – which surveyed 2,300 organizations – illustrates a paradox which has long-been apparent to those working in the IP industry. Whilst sometimes intangible assets such as IP are highly prized and key to a business’ success, insufficient consideration can often be the norm when it comes to putting a financial value on these assets in order to better exploit them and integrate them into wider corporate strategy at the board level.
Indeed, whereas so-called tangible assets – property, plant and equipment (PP&E), for example – can have their financial value easily assessed, calculating such valuations for IP assets is a more complex process. The end result is that tangible assets can be more readily exploited in strategic decision-making – despite the fact that that Aon and the Ponemon Institute’s research demonstrates that the average potential loss to certain intangible assets is considerably higher than it is for losses to PP&E assets ($1.08 billion and $795 million respectively).
This is not to say that companies are blind to the strategic value of their IP assets of course, whether they be patents, trade marks, copyrights or trade secrets. The data shows that the four-year period between 2015 and 2019 saw a 33 per cent increase in the protection of potential loss of IP or information assets versus a nine per cent increase for PP&E assets. Organizations are clearly beginning to recognize the value of IP and the importance of protecting IP assets against threats that may exist.
Executives and board-rooms are becoming alive to the risks as well as the huge opportunities brought about by IP assets in terms of corporate strategy. In fact, increasing numbers of mergers and acquisitions are being driven by IP, with the acquisition of new IP rights becoming a strategic priority for many firms, particularly in the pharmaceutical, technology, media and telecommunication sectors.
The ability to truly understand intangible assets such as IP, and to put a financial value on such assets, can therefore be a determining factor in ensuring long-term growth and success for an organization. The firms that will be successful in the future will be those that have understood this and been able to leverage all their assets – resulting in fresh opportunities, better decision-making and stronger risk management. This is all the more important in a digital era, where intangible assets could come to outweigh tangible PP&E assets and where accelerating technological development is making innovation more valuable than ever before.
Intangible assets remain under-valued or under-utilised vis-à-vis tangible assets, as is to be expected perhaps, but the trend is clear. An increasing number of organizations are choosing to integrate IP into broader business strategy as they come to fully appreciate the risks and opportunities brought about by their assets. Those that are able to take the lead in doing this will undoubtedly find themselves in a better position to confront the future and capitalize on opportunities.
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